Recent developments in cases brought by Constitution Pipeline Company to challenge New York’s denial of certain water quality authorizations highlight tensions between federal and state oversight of interstate natural gas pipeline construction projects, and the accompanying potential for costly and protracted delays. Under the scheme of “cooperative federalism” set up by many environmental statutes—such as the Clean Water Act (CWA), the Clean Air Act, and the Endangered Species Act—even where a natural gas project is under the exclusive federal regulatory jurisdiction of the Federal Energy Regulatory Commission (FERC), it will often require state-issued permits or other authorizations to go forward. The controversy in the pending Constitution Pipeline cases concerns the extent to which a state may assert authority over discrete aspects of a federally-regulated project in a manner that delays or prevents its construction.

Under Section 401 of the CWA, an applicant for a federal permit to conduct activities that may result in discharges to navigable waters must provide the federal permitting agency a certification from the state in which the discharge originates that the discharge will not violate state water quality standards. 33 U.S.C. § 1341(a)(1). States have one year from receipt of a request for certification to grant or deny it; otherwise, the certification requirement is deemed waived. Id. For most pipeline construction projects, application for a CWA Section 404 “dredge and fill” permit from the U.S. Army Corps of Engineers will trigger the CWA Section 401 water quality certification requirement. The Corps will not issue a Section 404 permit until CWA Section 401 water quality certification has been obtained from or waived by the relevant state. 33 C.F.R. Part 325.2(b)(1)(ii). Other state programs also often require site authorization (such as stormwater).

Constitution applied for a water quality certification from the State of New York Department of Environmental Conservation (NYDEC) in 2013, along with other water quality-related state permits that NYDEC asserted were required in order to process the project’s application for certification. After deliberating for more than two and a half years, in April 2016 the State ultimately denied the requested water quality certification and delayed action on the state permits, which are still pending before NYDEC. Constitution filed lawsuits against the State in the United States Court of Appeals for the Second Circuit and the federal district court for the Northern District of New York shortly thereafter, in May 2016.

In the Second Circuit case, Constitution seeks review of the NYDEC’s decision to deny water quality certification, invoking the Court’s exclusive and original jurisdiction provided the Natural Gas Act (NGA) over a state agency’s action to deny authorizations required under federal law for an interstate natural gas project. Constitutionargues that the State waived the Section 401 water quality certification requirement when it took more than two years and eight months from Constitution’s submission of its application to issue its denial. It also argues that the denial intrudes upon FERC’s exclusive jurisdiction over natural gas pipelines projects under the NGA, constituting an impermissible collateral attack on the Certificate of Public Convenience and Necessity that FERC issued for the project in 2014.

In the federal district court case, Constitution seeks a declaration that the other water quality-related permits that NYDEC purports to require in conjunction with CWA Section 401 water quality certification are state law requirements that are preempted under the NGA. It also seeks a declaration that the CWA exempts the project from coverage under the State’s NPDES General Permit for Construction Activities, citing 33 U.S.C. §§ 1342(l)(2) and 1362(24). NYDEC recently filed a Notice of Motion to Dismiss the district court case and a Memorandum in Support, arguing among other things that the court lacks jurisdiction given the NGA provision vesting “exclusive and original” jurisdiction over actions to review certain state agency actions in the federal circuit courts of appeals. 15 U.S.C. § 717r(d)(1). It also claims that the court lacks jurisdiction over Constitution’s preemption and exemption claims, characterizing them as objections that should have been raised during the FERC Certificate. Constitution’s response is required by September 1, 2016.

In light of the importance of the case to the pipeline and natural gas industries, as well as other industry sectors with an interest in the broader impacts of state certification and permit denials for interstate projects, a coalition of business, manufacturing, and other trade groups recently filed an amicus brief in the Second Circuit case. The coalition—which includes the National Association of Manufacturers, the U.S. Chamber of Commerce, INGAA, AGA, API, and others—argued that any ruling from the Court that would allow individual states to unilaterally veto FERC-approved projects could fundamentally undermine and upset the balance under the NGA between state permitting authority and FERC’s role in determining whether a proposed project is consistent with “the public convenience and necessity.” 15 U.S.C. § 717f(c).

Related issues are under review by the Third Circuit, which is considering third party challenges to the issuance (rather than denial) of Section 401 Water Quality Certifications by the State of Pennsylvania for the Atlantic Sunrise and Leidy pipelines proposed by Transco. In the Leidy case, the State has taken the position that the proper forum for reviewing the State’s water quality certification decision is the state administrative hearing process, whereas the project proponent and challengers are aligned in their view that review is proper only in the federal circuit courts of appeals, under the NGA exclusive jurisdiction provision. The parties have briefed the court on the jurisdictional issues, and the Atlantic Sunrise case has been stayed pending the Court’s decision. The outcome of these cases will further clarify the proper role for a state—including its administrative review process—in overseeing new natural gas pipeline construction.

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The Hunton Andrews Kurth LLP pipeline practice, comprising more than 75 lawyers, has been providing legal advice to the oil and gas industry for over fifty years. We advise and represent numerous oil and gas companies across the US on virtually all types of environmental, regulatory compliance and enforcement defense issues involving the design, siting, construction, testing, operation, maintenance and integrity management of oil and gas pipelines. Our team draws on its strong working relationships with the various federal and state agencies that regulate pipeline activities to manage clients’ evolving legal and business needs as efficiently and effectively as possible. With representations in nearly all 50 states, our depth of experience is matched by our geographical footprint.

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